As a Pretty Woman once said: “You work on commission, right? Big mistake. Huge!”

More than three-quarters of the wealth management industry is expected to operate on fee-only models by 2026, according to a new Cerulli report. The shift comes as advisors double down on financial planning instead of just portfolio management and other product-based services, like insurance. Commission-based compensation structures are used by only 23% of advisors today.

“The benefits [of fees] for both the advisor and client are that they are essentially now sitting on the same side of the table and can equally benefit from the growth of a portfolio,” said Kevin Lyons, Cerulli senior analyst.

Death of a Salesman

Plenty of advisors have ditched commission structures for ethical reasons, citing conflicts of interest and fiduciary standards. “It doesn’t create a good environment for a client or for the advisor,” said Kyle Harper, who recently started his own RIA, Harper Financial Planning. Harper said he left his previous role at a firm that operated on a hybrid structure of fees and commissions.

Commission-based structures’ role in the industry — and how much revenue they generate — has greatly declined in recent years:

• Today, asset-based fees are the most popular kind of fees, representing more than 72% of advisors’ compensation. Meanwhile, commissions account for less than 25%, according to Cerulli.
• By next year, a little over half of advisors will be “primarily fee-based,” meaning 90% or more of their business operates on fees. In contrast, just 1% of advisors are expected to be commission-only in 2026.

Fees vs. Commissions. Many clients, especially millennials, are skeptical of advisors who work on commission, said John Bell, who runs Free State Financial Planning. “As a client, how do you truly know they are acting in your best interest, specifically if they are beholden to their company products?” he told Advisor Upside, adding that fees provide clients with greater transparency.

However, Bell goes one step further than fee-only, offering advice-only services at a flat rate. He argued the “we make money when you make money” mantra of asset-based fees is disingenuous. “Are they doing more work for you when you have a $500,000 vs. a $5 million portfolio?” he said. “They might be doing more, but I don’t believe they should be compensated almost 10 times more.”

Who’s coming to the private party?

The Securities and Exchange Commission published a set of answers to frequently asked questions last week that confirmed marketing materials can show performance figures and metrics that were previously considered off limits. That followed so-called “no-action” guidance that gave private funds a green light for soliciting a wider range of investors. Those are the latest steps the SEC has taken to give retail investors more access to private investments, said Igor Rozenblit, managing partner of consultant Iron Road Partners.

Nothing But Net

The updated set of FAQs addresses issues in the SEC’s fund marketing rule that went into effect in 2021, which falls under the Investment Advisers Act of 1940. While the guidance isn’t necessarily limited to private investments, it is clearly aimed at those, sources said.

There are two new questions the regulator answered:

• Fund providers can show gross performance for individual investments or groups of investments without having to show performance net of fees for those.
• They can also cite portfolio metrics such as yield, volatility, Sharpe ratio, and others without adjusting for fees. The SEC gives some examples of metrics that count as performance and need to be presented on a net-of-fees basis.

“To see them at all is really important, because investors do all sorts of analysis,” Rozenblit said. Investors “really want to see item-by-item [performance].”

A caveat is that fund companies must show net performance for the fund as a whole, in a location in the marketing material somewhat near the breakouts for individual investments.

Without the new guidance, private equity shops worked under the assumption they had to adjust the performance of individual holdings for the fees they charge — no easy task, since fees are assessed at the fund level. “People couldn’t figure out how to attribute fees to create nets,” Rozenblit said.

It’s Private. Since assuming his role as acting SEC Chairman, Mark Uyeda has made clear that increasing access to private investments is a priority. The FAQs address “a known bottleneck” in the marketing process for private funds and “should help advisors to present information that they see as useful to investors,” said Adam Bolter, counsel at Katten Muchin Rosenman. And, there may be more on the way: President Trump’s nominee to lead the SEC, Paul Atkins, hasn’t even been confirmed yet. “Under the past administration, it was a lot more challenging for staff to put out guidance,” Bolter said. “We just didn’t see a lot of it.”

The GOP has its own ticker again.

An exchange-traded fund that curates its investments according to holdings reported by Republican members of Congress announced Wednesday that it is changing its ticker from KRUZ, presumably a nod to Sen. Ted Cruz, to simply GOP. The GOP ticker had been used by the Republican Policies Fund, an ETF that is no longer active. The confirmed ticker change presents an opportunity to compare how politically driven investments have done so far this year.

“These ETFs aren’t a tool to express a political view,” said Cinthia Murphy, investment strategist at VettaFi. “What’s interesting about the value proposition of these funds is the idea that Congress members are investing in stocks they themselves are regulating. This should offer a level of insight into the opportunity set that most of us lack.”

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